Potential Bearish Push To 0.83420 | $NZD $USD #forex

On a fundamental basis, NZD may have demonstrated all the bullish strength it could following its 0.88345 just about 14 days before RBNZ raised its central rate from 3.25 to 3.50%. While the Pavlovian Forex trader might have anticipated a rallying in the currency on the back of this rate increase, one has to look into the weighing of debts, compounded with the decrease returns from lower milk futures to expect that further price upside have become glowingly limited by export costs and weaker revenue potential for this export-dependent economy.

With this fundamental background, one would tend to look for further downside in price action, in terms of pattern development and predictive/forecasting model-based analyses.

PATTERNS ANALYSIS:

One pattern I look for is the Shark-to-Five-Zero (or simply: Shark and 5-0 ) patterns.

For one, Sharks, if living up to their signature extensions (i.e.: 1.131 x 0-X) whereby the terminal Point-C completes such pattern BEYOND Point-Zero (yes, very unusual geometries), then I tend to look at this as a market-driven directional indicator. First, as you may recall, Sharks are quasi-patterns, in the sense where they start at a qualitative point called ZERO, and complete at Point-C, which is very different to all other classic patterns which maintain their standard X-A-B-C-D anatomical points.

But this is an important detail, because being quasi-patterns 9i.e.: almost complete), they in fact seek completion by acting as gate-keepers to an associated pattern called Five-Zero, or simple 5-0 ("five-oh"). The 5-0 pattern thus completes at a conventional Point-D, which is classically situated at 50% of the B-C impulse leg, hence its 5 and 0 for 50.

Now, looking back at the chart, and keeping the directional meaning of a Shark extending past a historical structure low of 0.84013, one has to suspect that bears will remain in charge for MOST of the price field.

I say most, because the 5-0 will probably find expression all the way to 0.85883, thus pulling its geometric envelop at a point that has been validated multiple times before (see the large rectangular feature which would otherwise lay hidden as an occult geometry).

While there is never any certainty about which pathway price is about to follow, here we are simply talking about a Shark-to-Five-Oh follow-through, not because it has to happen, but simply because the fundamentals are calling for further downside. Therefore, situating ourselves relative to upside potential, and being able to approximate what the upside (counter-fundamental reaction) levels can be should help the trader avoid wasting time if indeed this pair were to fall further after a time-consuming rally.

For the sake of speculating visually on the possible price action/pathways, I have drawn blue arrows to depict the most probable pathways, while grey arrows depict the less probable, and the lightest depicting the least probable. ALL of these levels are geometrically defined, except for the top-most, which has been defined by the model given the low probability scenario of a significant adverse excursion.

Related Ideas

A watched chart does not boil - At least, that what's come to mind with this $NZDUSD. However, a lot of retrospection in our own experience tell us the whole story, and sometimes, it all comes together as a lesson for "next time". This is really what's behind all of my trading plans. I look for the worse case scenarios, then sift through the most probable one.

In this case, this early week of trading may have revealed some clues, if we remain dead-set that a reversal is afoot here. What I am highlighting in the chart is such a retrospective projection, as if I stood in the future and looked back at what the market could develop in terms of reversal pattern that would appear so evident once I stood at that moment in the future.

ASSUMPTION:

Here, the assumption is that the model I use for R/S level determination is sound and reliable (a much bigger assumption for anyone else to make, since they have no access or insight into this model), and that the model works in this particular environment. If true, then the TG-1, which is a quantitative target, will act more as a R/S level than a reversal level.

At this point, price has developed symmetrically around that target, and I remain biased that a significant correction might occur in this area, in the order described in the chart. However, for this to occur, a geometry has to prepare this market to do so, leaving only a few choices to consider.

WAVE COUNT RATIONALE:

One in particular comes to sight, based in the lower lows carved out over the past several candles. As a 5-wave move provided the first low, notice also that a correction occurred with a 3-wave pattern, as it should, but that a SECOND 3-Wave pattern occurred in the direction of the market. Although more could come out of this zig-zag to complete an overdue 5-Wave downward as expected, a failure to do so should alert us that instead, a pattern has taken over the 5-to-3 wave cycle, and instead is about to fashion a pattern of its own in preparation for a rally.

Such pattern that would be ideal from a "looking into the future's past" stand-point would be a Diagonal Triangle, with its 3-Wave alternative construction that would link all of its A-B-C-D-E points before a rally would occur.

OVERALL:

I have set a threshold (I would refer to it as a tolerance level, defined by my own risk management, hence it might differ among traders) at 0.82762, defining a outer most target that would come into alignment as the descending scaffolding of a reversal pattern unfolds. Let's see what this week brings us.

If you are still in this trade, be sure to use your own defined level of risk based on a similar "tolerance" line that you have defined for yourself before you even entered this or any other trade. This is how it's done anyway: Never enter a room from which you can't escape. Or, in better miliraty terms: Engage a situation only once you control the outcome.

In trading, I would advise: Control your losses, your gains and the alternate geometric scenarios that emanate from merely being part of this large mathematical universe.

Hello, @GohSam - At this point, price is acting in the pattern that would be indicative of a possible change to the upside. There is no indication of bearish strengthening, although it can always change quite rapidly. Best is to look for levels where change would occur contrary to expectation. If it were to decline, I would look for 0.886 as a last tolerable level of risk given a bullish expectation. A break above 0.84145 would suggest a pending face-off with bears, whereas a break above 0.84292 would suggest a significant win over bears.

Hello @GohSam - The chart from which I observe price development are H4 timeframes. From the time it carved a new low and hit my target in that process, it went on to rally significantly, in a manner that is quite wide for this pair.

From your frequent inquiries, I am thinking that you might perhaps be looking at it from a smaller timeframe. However, at this point, the retracement that has occurred since it rallied from the lowest-low level remains at only one third of that total move. In other words, this pair sits at about 66% of its rally since the a historical bottom was reached.

If you look at the way this price expands, it is limited by an average range of expansion over a given number of days, which an average true range indicator could tell you. In other words, there is nothing abnormal with this price action that should conclude anything bad or bearish. In fact, even if price was to decline at or lower than the recent bottom, it really depend on how you perceive it in relation to your trading plan.

The way I look at it, there are two universes. One where price moves on its own independent of how I feel, and another where I have a plan to trade, and only trade the plan when the independent conditions of the other universe happen to satisfy those of my trading plan.

In this way, there is nothing bad or bearish, and nothing good or bullish, until the conditions are met to make it one or the other, and in which case, I act on the trade accordingly.

I will assume that you have such a plan, and if this is the case, then I would not worry about the relative position of price relative to where it was and needs to be. It simply is doing its aleatory gyrations, whose patterns should be deciphered in a way that fashions a plan. If not, then it would be too maddening to look at it and worry about its whereabouts.

So far, price is where it wants to be, while my trade stands on its own. Both happen to be on the same side of the plan. So, no worry.